No Health Insurance Still Means Big Penalties
Weekly Tax Tip
If you think President Trump’s recent executive order means that the fees for not having health insurance are no longer in effect, you could be sorely mistaken. To avoid potentially thousands of dollars in “shared responsibility” tax penalties, you still need to be covered by a basic level of health insurance.
During his first week in office, President Trump signed an executive order asking federal agencies to reduce the economic burden on American citizens due to the Affordable Care Act (ACA).
Unfortunately, this executive order is causing confusion and a false sense of security that the fines and rules no longer must be followed. Unless the actual laws are changed, including the tax code, you could be in for a very unpleasant surprise when you file your tax return in 2016 and 2017 if you do not have qualified health insurance.
A potential $2,000 plus penalty
The “shared responsibility” penalty for not being covered by a minimum level of health insurance costs a minimum of $695 per adult and can range as high as 2.5 percent of your annual income above the federal filing threshold. The penalty is capped at the annual cost of a basic “bronze-level” plan in the healthcare marketplace. Here is the calculation of the penalty.
Fortunately, there are exceptions that can reduce or eliminate this penalty. The most common include short gaps in health insurance coverage and exceptions for lower income taxpayers.
What to do
The chatter out of Washington is that there will be major changes in the ACA. This could mean an elimination of the individual mandate that results in no longer having a shared responsibility tax payment. But for this to happen Congress must pass legislation. It cannot be undone by an executive order.
No one knows exactly what ACA changes will be passed into law. In the meantime, the best defense against the shared responsibility payment is to get health insurance coverage. The sooner you do, the less chance of an unwanted tax bill at the end of the year. If you do not, at least plan for the required payment when you file your tax return. No one likes a potential $2,000 tax surprise.
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